With property prices soaring higher than ever, banks are now choosing their borrowers more carefully, never trusting anyone who does not meet the high credit scores. Arun Thukral, managing director at Credit Information Bureau Ltd (Cibil), India, reports, “Banks have become prudent and are looking at improving the health of their portfolio”.

Thukral goes on to explain, how the banks earlier would offer loans to anyone who had a total Cibil credit score of 600-700 to buy a property for a house. But today, banks offer 60% of the home loans to mostly, people who have about 800 credit scores, at least.

Reasons for Banks to Become so Stringent with Home Loans:

• One of the reasons is the imbalance between salary hike and rise in property prices. Though the rate of salaries has improved over the years for the average Indian, compared to the increase in property cost,however, the total sum of income is almost negligible. Thus, borrowers are swamped with less monthly salary but high loan payment.

• According to the data revealed by the National Housing Bank, even though there has been an economic crisis over the years, the home prices in metropolises have doubled, unfortunately. Ananda Bhoumik, who is an analyst at India Ratings & Research, further explains the problem stating that when the collateral values of the residential and gold loans (which are the two most desired products) fall by a significant amount, the business starts centering on asset quality pressures.

Ineffective Corporate Loans:

Due to corporate sectors that stay uncertain and subdued, Indian banks have been forced to start focusing on retail loans as credit off-takes. Corporate loans have turned completely ineffective which further creates a more sluggish economy, and that is why more people today, find that consumer loans are a much better option.

Retail credit comes with its own set of risk, which the banks are completely aware of, and that is why have they have to use appraisal and risk underwriting processes to assess situations, before sealing deals with separate individuals.

Variations and Risks:

The mortgage-to-gross domestic product ratio stays at a low, which equals to a mere 7% in India. And most of the loan amount that the banks deal with, is centered mainly on the urban societies of the country. Even though property and gold prices are not expected to crash so easily, without prior notice, credit bureaus do understand that there is always a systemic risk that is involved.

So, if the price of the collaterals falls, the risks that banks are taking go further up and this is the main reason why banks today are being extremely careful with their clients and borrowers, thereby, making the process of offering home loans to people, a more thorough and difficult work.